The article "5:7" by Mr Hri Kumar, MP for Bishan-Toa Payoh GRC on the p65 blog raises much questions and contradictions and I would hope to address them in the following article.



I do not agree with Mr Kumar's view that increasing GST is the best way to raise funds to establish and support programs to grow our R & D capabilities and enhance Singapore's medical and research infrastructure, and to help the less fortunate and the elderly. It is just one of the many ways to raise funds and to proclaim that little specifics can be offered to alternative methods just goes to show that the government has not fully explored all the other viable alternatives.



I would like to see the government raising the corporate tax rate by 1 or 2 percentage point. This may seems detrimental to Singapore's economic competitiveness but a closer look at it may provide us with a different picture to what the authorities and mainstream media would like us to perceive.



An increase in 1 percentage point would generate four to five hundred million dollars which could be used to finance benefits such as the workfare bonus and cash handouts while maintaining a healthy tax revenues from the 5% GST rate.



Is it wise to increase Singapore 's corporate tax rate or continue to wage a corporate tax "war" with Hong Kong?



No, definitely not. Though Singapore 's corporate tax rate (20% with plans to lower it to 19%) is higher than Hong Kong's rate of 17.5% but the point is this. Even at a proposed rate of 21 – 22 %, Singapore 's corporate tax rate is among the lowest and most competitive in the Asia Pacific region. It can be noted that the corporate tax rate for Japan, India , China and South Korea , Taiwan is 40.66%, 33.66%, 33%, 27.5% and 25% respectively. The average tax rate for the Asia Pacific region is 30%,much higher than the proposed rate of 22% that Singapore could adopt.



The fundamental fact is this. Even if Singapore increases its corporate tax rate to 22%, Singapore is still competitive and Singapore, in the words of Minister Mentor Lee, “can offers investors better returns than other places in the region.”




Moreover, the Singapore government should consider increasing our income tax rate from 20% to 22% as well. This is a practical way whereby the well-to-do and successful can lend a helping hand to the poor and needy and to contribute towards building an inclusive society.




Essentially, this is to take money from the rich and redistribute to the poor. Right now, with a possible increase of GST to 7%, the government is taking money from the poor and redistribute to the poor again. Is this a logical way to solve the problem of a growing income gap that Singapore is facing?




Furthermore, with the numbers of millionaires in Singapore set to swell to 40,500 by 2009 from the current number of 28,200 in 2004. Furthermore, it is expected that by the year 2009, the number of individuals with liquid wealth of more than US$200,000 will increase to 272,800 individuals. Indeed, the potential to collect substantial tax revenues is certainly possible without any increase in current GST rate.




In short, there are more than one viable alternative, other than an increase in GST rate which will allow the government to continue to finance R & D research and social programs.




Moreover, it is just too superficial to assume that just because of a high income tax rate, the rich and wealthy in Singapore will leave and seek greener pastures elsewhere in the region. More often than not, political stability, national identity and belongingness have much more influence on an individual's willingness to entrench its roots here in Singapore.




Looking at the Scandinvian countries of Sweden, Denmark and Norway, where there is a much higher income tax rate than Singapore, the rich and wealthy are still staying put because they see themselves playing an important role in the future development of the country. In this case, Mr Kumar's statement is regrettable as it tends to portray Singaporeans as materialistic, and quick to abandon the country once the going is tough.




It is also worth noting that Mr Kumar mentions that other than raising the GST rate, there could be a possibility the government will deploy part of the income earned on the reserves. This suggestion that leveraging on the huge reserves to help the poor was labelled as a "time bomb" by Manpower Minister Ng Eng Hen during the last elections.




In the words of Minister Ng Eng Hen, this would potentially lead to "a tragic result if they implement these ideas." If that the case, why is the PAP government still considering to leverage on Singapore's national reserves to help the poor and needy?




Another point is this. Singapore experienced healthy growth rate of 7.7% in 2006. and the STI index pass the 3,000 mark for the first time ever. All signs point to a booming economy. This means that the government would have enough funds to finance the workfare bonus that it wishes to implement. In that case, why is there still a need to increase the GST rate?




I am convinced that youths today are not against raising the level of GST per se, but against the way and timing it will be implemented.




I would like to see a flexible GST structure whereby both basic necessities and luxury goods will be taxed. However, all basic necessities will be taxed at a rate of 3% while keeping the tax rate for luxury items at a consistent rate of 7% as proposed by the government. Though Mr. Kumar's argument is that a multi-tier taxation system will create a huge bureaucracy which will cost more money to sustain, I am not convinced by this line of thought.




In the first place, the entire apparatus of the government is a huge bureaucracy and it has been shown that with capable leadership, it can be cost-effective and efficient at the same time, while protecting the interests of our poor and needy.



In order to cope with the possible fall in revenue that the government might face in implementing 2 different tax rates, I also would like to see the government raising the tax rate for cigarettes and alcohol consumption to offset the impact of implementing a 3% tax rate on basic necessities.



Like Mr. Hri Kumar, I rather we do not run huge budget deficits to fund our R & D programs and finance our social policies and let our children worry about how to pay the debt. But I believed we can do that with a GST tax rate of 5% for the next 5 years.